The Game’s Up!

By Peter Lewis

Labor Council research blows the whistle on executive pay, showing that the more you pay the less you get.

War Declared on Mega Salaries

Unions will wage a three-pronged assault on executive pay in the wake of research shattering the link between gold-plated remuneration and company performance. The Labor Council of NSW will press for legislative change, greater activity by super fund trustees and grass-roots industrial campaigns to end the explosion in CEO pay which has jumped to 74 times the average weekly wage. The research, conducted by a team of academics commissioned by the Labor Council, found that the often-stated link between high executive pay and company performance does not exist.

They found that executive pay levels had exploded in the past decade from 22 times average weekly earnings in 1992 to 74 times average weekly earnings today. And in the finance sector the figures are more perverse, CEOs earning 188 times the salary of customer service staff. By analysing the performance of companies against three criteria - return on equity, share price change and change in earnings per share - the researchers actually found that high excessive pay levels actually coincide with a lower bottom line. "If you look at the numbers, it is accurate to say the more you pay a CEO the worse the company performs and the less you pay the better it performs," researcher Dr John Shields for Sydney University's School of Business says.

Applying this analysis, the authors identified a performance-optimal range for executive remuneration of between 17 and 24 times average wage and salary earnings, beyond which the performance of a company begins to deteriorate. This means that any company paying CEO's more than $800,000 begins to be a bad bet.

Labor Council secretary John Robertson says research takes the debate about executive remuneration to a new level. "This research shows that executive pay is not just a moral issue; it is a shareholder issue and it is a job-security issue. For workers, it shows that an excessively paid CEO is likely to preside over a weaker company, meaning their jobs are less secure.

Time for Change

In the report, the authors identify a range of reforms to address the pay blowout and increase accountability, including:-

- Government use of purchasing policy to encourage firms with moderate executive packages..

- The Australian Stock Exchange's (ASX) regulatory functions are compromised, as the ASX is itself a privately listed company. These functions should be transferred to a fully independent entity such as the Australian Securities and Investment Commission (ASIC).

- Restricting the use and abuse of share options by means of a specified cap on the ratio of executive options to the company's total share issue and via the imposition of a minimum vesting period of three years.

- Action, including legislation, to make superannuation funds more accountable for executive pay decisions, with nominees required to report to members on executive pay decisions.

- Registration of all organizations providing commercial services in the field of executive remuneration, with annual reports required to a relevant statutory authority.

- And, introduction of more stringent disclosure requirements, requiring formal shareholder approval for all executive salary decisions.

For a full copy of the report click here: http://www.council.labor.net.au/community/public/buckstop20030523.html

(Source: Workers Online)

BHP Chief Shows How It's Done

Coinciding perfectly with the release of the report was news that dumped former BHP Billiton chief Brian Gilbertson has joined the executive payout big league with a $30 million cash and superannuation extravaganza after just 27 weeks in the job. Gilbertson will be entitled to a lifetime pension of $1.5 million a year, which will rise with inflation, after 32 years with a South African company that became the world's biggest miner when it merged with Australia's BHP. After a tortuous four-month negotiation, the company and Mr Gilbertson agreed on a $10.1 million cash payout, $374,000 in relocation expenses, up to 228,685 free shares (worth $1.94 million at yesterday's closing price) and the annual pension. f Mr Gilbertson, who is 59, dies before his wife, Rensche, she gets two-thirds of the pension, or $1 million a year, indexed to inflation, for the rest of her life. The pair will also have their medical insurance paid until his contract would have ended in June 2005. Mr Gilbertson resigned in January citing "irreconcilable differences" with the board over his ambitious expansion plans. (Source: The Australian)

Taxpayers Guarantee Ziggy's Future

Meanwhile, it's been revealed that chief executive of Telstra, Ziggy Switkowski, would receive a year's pay if he was sacked. The information was revealed when executives told a Senate committee that at least 3000 Telstra jobs will have been axed over the 12 months to June 30. Dr Switkowski, whose contract expires in the first half of next year, was paid $2.4 million last year. This included a base salary of $1.25 million and a "short-term incentive" of $1.15 million. The terms of the contract were decided by Telstra directors and disclosed in the annual report. The Labor Party suggested Telstra's retrenchment provisions for Dr Switkowski were at odds with the Government's national redundancy scheme, which says employees should receive eight weeks' pay if made redundant. Labor has been pushing for shareholders to be allowed to vote on executive remuneration. (Source: SMH)

More Jobs Out Of Reach

Also cutting jobs is Reach, the troubled Asian venture of Telstra and Pacific Century CyberWorks. It is to make 250 staff redundant as part of its cost-cutting program. The cut represents more than one-quarter of the undersea cable venture's 960 staff worldwide, but is half the number of redundancies flagged by a Hong Kong newspaper last month. The cost-cutting follows long and painful debt negotiations between Reach's parent companies and the bank syndicate responsible for $US1.5 billion ($A2.29 billion) in loans to Reach. Reach chief executive Dick Simpson said: "The global telecommunications sector needs reshaping. This is expected to continue for some time, so we have taken the necessary steps to face this changed market reality now." (Source; SMH)

Black's Buck Under Challenge

Meanwhile, US shareholders frustrated by the way newspaper publisher Hollinger International is managed are turning to its high-powered outside directors for help. Tweedy, Browne, a money management firm that owns 17.7 per cent of the outstanding shares of Hollinger, asked the company's board to investigate $US73.7 million ($112 million) in payments to Lord (Conrad) Black, the chairman and chief executive, and other senior executives. Tweedy, Browne officials are trying to get the attention of the company's outside directors, who include Henry Kissinger, the former US secretary of state, and Richard Perle, former chairman of the US Defence Policy Board. Tweedy, Browne said those payments had exceeded $US200 million since 1995 and focused on the $US73.7 million paid to executives since January 1, 2000, under agreements not to compete with the buyers of assets sold by Hollinger, which publishes the Chicago Sun-Times, The Daily Telegraph of London and The Jerusalem Post. (Source: The Australian)